board functioning presenation

8/2/2019 Board Functioning Presenation

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OECDGlobal Network on

Privatisation and Corporate Governance ofState-Owned Enterprises

Paris2-3 March 2010Mohamed Adam


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Board Functioningand Evaluation


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2010/03/12 3

Introduction

Topic interrelated board functioning cannot be viewed in isolation Composition Structure (unitary or two-tier)

How do you know whether a board is functioning well?

Need to measure performance against certain criteria Role Strategy and objectives

For an SOE, should the criteria be different?


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Introduction

State is a unique shareholder

May have conflicting objectives

State has different roles with regard to

Policy

Regulation

Performance of SOEs (Shareholder role)

This presents a challenge for effective performance


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Role of Boards


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Role of Boards

What is the fundamental governance challenge of the 21st century?

Mainstreaming Directoral dilemmas (B Garrett)

Qualitative and not quantitative governance

Good governance is essentially about effective and responsibleleadership acting in the interests of the company

Responsible leaders

Build sustainable businesses Reflect on the role of business in society

Do business ethically Do not compromise the environment Embrace a shared future with stakeholders

Institute of Directors of Southern Africa: King Report on Governance for South Africa 2009 p20


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Functioning of boards


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Characteristics of Boards

The Rubber Stamp The Dreamers The Talking Shop The Adrenalin Groupies

The Number Crunchers The Semi-Detached

Corporate Governance A PracticalGuide 2004, London Stock Exchangeplc and RSM Robson Rhodes LLP


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rs ep s o e ne aType of Board Is Required

Low Involvement High Involvement

The PassiveBoard

At discretion ofthe CEO

Limited activity &participation

Limitedaccountability

Ratifies mgmt.

preferences

The CertifyingBoard

Certifies to SHsthat CEO meetsexpectations

Takes correctiveaction only asultima ratio

Understands role

of ind. directors Informed about

CEOs

performance

Establishes asuccession plan

The EngagedBoard

Provides insight,advice & supportto mgmt.

Understands itsresponsibility tooversee mgmt.

Guides & judges

the CEOHas right skills

mix to add value

Define roles andresponsibility ofboard vs. mgmt.

The InterveningBoard

Intensely involvedin decision-making aroundkey issues

Frequent &intense meetings,often on shortnotice

The OperatingBoard

Makes keydecisions thatmgmt. thenimplements

Fills gaps inmgmt.experience

Source:HBR, David A. Nadler,Building Better Boards


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An Effective Board

The Effective Board

Clear strategy aligned to capabilities Vigorous implementation of strategy Key performance drivers monitored Effective risk management Sharp focus on views of City and other key stakeholders Regular evaluation of board performance

Corporate Governance A Practical Guide 2004, London Stock Exchange plc and RSMRobson Rhodes LLP


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Functioning of Boards

How should a board function to fulfil its role effectively?

Key success factor is leadership

Includes : Role clarity Vision and Values Effective strategy development Independence and credible processes Effective chairperson Effective board committees


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An Effective Board

Role Clarity:

Role of the board, management and shareholder mustbe clear

Shareholder and board

role in strategy and setting objectives crucial in SOEs

Board and management

Values, vision

Role of the board is a reflective one - nose in fingers out


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Leadership Management

People Things

Spontaneity, serendipity Structure

Release, empowerment Control

Effectiveness Efficiency

Programmer Program

Investment Expense

Principles Techniques

Transformation Transaction

Principle-centered power Utility

Discernment Measurement

Doing the right things Doing things right

Direction Speed

Top line Bottom line

Purposes Methods

Principles Practices

On the systems In the systems

Is the ladder against the right wall? Climbing the ladder fast

Source: Covey Stephen R The 8th Habit from effectiveness to greatness

An Effective Board Roles


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An Effective Board

Strategy Development:

Clarity of strategy the board should play a prominentrole in the strategy development process

Integration

Risk, sustainability, strategy, governance


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An Effective Board

Process:

Balanced board

Engaging and robust debate

Independent

Diversity of views

Process to address conflicts


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An Effective Board

Effective chairperson:

Independent

Inclusive

Encourage participation

Link between board, management and shareholder

Set tone

Formulate workplan

Ensure directors play an affective role

Ensure directors are aware of responsibilities


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An Effective Board

Committees:

Well structured committees

Audit Risk

Remuneration

Nominations

Clear terms of reference Board should empower but not abdicate

Regular reporting to board


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An Effective Board

Is it or should it be any different for an SOE board?


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Evaluating Board

Performance


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Evaluating Board Performance

Improved board performance and effectiveness can be achieved throughregular and timely appraisals of the board

Effective and meaningful evaluation is only possible once the board hasdetermined its own role, functions, duties and performance criteria as well asthose of directors on the board and on board committees

The board should carefully consider whether the evaluations of performanceand independence should be done in-house or conducted by independentservice providers, subject to legislative requirements.

Evaluation procedures and results should be reviewed by the nominationcommittee or such similar committee of the board

Institute of Directors of Southern Africa: King Report on Governance for South Africa 2009

p44


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Evaluating Board Performance (SOEs)

Experiences of board evaluations suggest that an approach that reflects bestpractice should:

Ensure that government as shareholder is in a position to evaluate theperformance of the state-owned enterprise against specifiedperformance objectives;

allow the board to evaluate its own effectiveness and performance aswell as the performance of individual directors, and, if necessary, to takesteps to improve its performance;

ensure that the assessment of individual directors is supported by an

assessment of that director by the chairman as well as other boardmembers;


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Evaluating Board Performance (SOEs)

where circumstances allow, make use of independent externalassistance at reasonable intervals to enhance the credibility of theprocess; and

be transparent and ensure that all board evaluation results are submittedto government as shareholder.

The Power of Governance: Enhancing the performance of state-owned enterprises Reuel J Khoza andMohamed Adam p164


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Evaluating Board Performance Methodology

Selfassessment

Independent third party assessment

Board and individual director assessments

In either case the following techniques can be used: 360 degree feedback Dialogue Questionaire


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Evaluating Board Performance KeyQuestions

Is the mandate/role clear vis a vis the shareholder andmanagement ?

Are the performance objectives clear?

Does the board regularly review strategy and assess risks facingthe organisation?

How well do directors work together?

Is communication and discussion appropriate/robust ?Are

dissenting views tolerated?

Is a sufficient degree of consensus achieved on key issues?

How is the time of the board spent?


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Individual Director Performance

Does the director attend board meetings regularly? Is the director adequately prepared for meetings? Does the director participate actively during meetings? Is the director able to communicate and express ideas clearly? Is the director willing to listen and acknowledge other

viewpoints? Does the director understand the business of the company

and industry in which it operates? Is the director able to work effectively with other directors and

management in the best interests of the company? What does the director do well? What should the director do differently? Are conflicts of interest declared and managed?


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Conclusion

Success requires a change in paradigm

This change should encourage effective leadership and not tick-boxcompliance

We need to start at the top

board functioning presenation

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